The New Tax On Digital Services (“Web Tax”)
The law n. 145 of 30 December 2018 (the 2019 Budget Law) introduces a new tax on revenue arising from “certain digital services”. The legal framework is inspired by the 2018 EU Commission proposal for a directive on a digital service tax, having the common objective to tax digital economy in a more equal and efficient way.
The Budget Law establishes the principles of the new tax, while an implementing Ministerial Decree shall be issued within May 2019 in order to set out operative aspects. However, several critical aspects that leave room for interpretative doubts need to be clarified by the implementing rules.
Who pays the tax?
The Digital Service Tax (DST) is due by both resident and non-resident service providers meeting certain dimensional requirements and, in particular, by entities which, in a given fiscal year (coinciding, according to art. 1 par. 41 of the 2019 Budget Law, with the calendar year) realize:
- a global amount of worldwide revenues equal at least to 750 million Euro;
- an amount of revenues arising from “qualified digital services” provided in Italy equal at least to 5.5 million Euro.
Resident companies that are part of the same corporate group of a company subject to the DST are jointly and severally liable to pay the DST with the latter one.
What is taxed?
The Budget Law selects three categories of relevant digital services:
- (i) The placing on a digital interface of advertising targeted at users of that interface
- (ii) the making available of multi-sided digital interfaces to users, which allow users to find other users and to interact with them, and which may also facilitate the provision of underlying supplies of goods or services directly between users;
- (iii) the transmission of data collected about users which has been generated from such users’ activities on digital interfaces.
When should the DST be due?
The DST is due when the user is located in Italy. The law establishes the criteria in order to determine where a user is located, distinguishing between the three categories of digital services mentioned.
How should the DST be paid?
The DST is computed as 3% of the gross revenue arising from “qualified services”, without considering the costs incured to produce such revenue and excluding VAT and other indirect taxes applied.
The DST is due on a quarterly basis and a yearly return on “qualified services” provided must be submitted within four months from the end of the fiscal year.
The first aspect not ruled by the law that needs to be clarified concerns the deductibility of the tax. In that regard the law doesn’t say anything. However, it is reasonable to believe that the DST, as an indirect tax, would be deductible from the corporate income tax pursuant to art. 99 of the Income Tax Code. Moreover, the deductibility is provided by the EU Commission proposal of directive.
Doubts are raised with reference to the effectiveness of Tax Authority controls over complex and immaterial transactions such as digital services. For instance, it would be difficult to establish where the user is exactly located, considering that its possible to hide information about the IP address.
Moreover, it would be hard to determine which company would meet the dimensional requirements provided by the law. Indeed, web-companies may be not obliged to submit their financial statement in their country of residence and if so there is no legal obligation to specify the sources of the revenue in their financial statements. In a nutshell, the law assumes a remarkable level of cooperation between the Italian Tax Administration and web companies, and also extend joint and several liability to pay the DST to resident companies that are part of the same corporate group subject to the DST.
This article is for information purposes only and is not intended as a professional opinion.
For further information, please contact Federico Trutalli.